Yes, you have two options for reporting this situation.
1. Defer reporting the sale
until the rent-to-buy contract has expired.
2. Report the sale this year.
If you choose the deferral
option, you would continue to report your inventory each year as it is now. The
payments you receive will be handled in two parts.
a. The "rent"
portion of each payment is reported as Rental Income.
You can report this activity
under Wages & Income >> Rental Properties. Please follow these instructions: Where do I
enter income and expenses from a rental property?
b. The remainder is
considered "escrow" that will factor into your gain or loss when the
sale is closed. This portion is not included on your tax return until the end
of the contract.
For example, if they pay
$1000 a month and $700 of that is considered rent and $300 goes towards the
down-payment, then you claim $700 as rental income on your taxes. The $300 is
held as a lump-sum payment when they exercise their option and actually
purchase the property.
Your other option is to
report the entire sale this year. In this case, you would report zero ending
inventory, and the contract sales price as business income. (The two offset to
create a gain or loss for the transaction.)
The tax implications of the
tenant failing to exercise their option is beyond the scope of this forum. You
may wish to consult a real estate professional for assistance in deciding which
option is best for your particular tax situation.
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